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79 Cards in this Set
- Front
- Back
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What two factors does an employer take into consideration when deciding if to hire an additional worker?
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Value of Marginal Product (contirbution of worker to revenue) and wage (Contribution to cost)
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How do you calculate the Marginal Product of Labor?
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Δoutput/ ΔE
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How do you calculate Value of Marginal Product?
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price of item * Marginal Product
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What formula determines a firms profits?
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profits= (q*p) - (E*w) - (r*K)
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What is a perfectly competitive firm?
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A firm that cannot influence prices.
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What distinguishs the short run labor production scheme from the long run?
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In the short run, a firm cannot increase its Capital (K)
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What is the value of average product of Labor (VAPe)?
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VAPe = p * Average product of Labor
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To what point will a firm hire workers?
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To the point where the Value of Marginal product of labor = the wage rate.
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How do we determine if a value is statistically significant?
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The least squares or T-Vale. Divide the coefficent in question by its error and if >2, it is significant.
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Why is the short run demand curve for labor downward sloping?
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Because the marginal product of labor eventually decilines as per the law of diminishing returns.
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What is the elasticity of labor demand?
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The change in employment resulting from a change in the wage.
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How do you calculate the elasticity of labor demand?
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(Δ Employment %/Employment %) / (ΔWage / Wage)
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What is the sign of the elasticity of labor demand?
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Negative
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In the long run, how does a firm maximize profits with respect to its factor inputs?
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It chooses the ratio of Capital to Labor. As capital is not fixed.
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What is an Isoquant?
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Possible combinations of labor and capital that produce the same level of output.
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What are the 4 properties of Isoquants>
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1. Downward Sloping
2. Do not Intersect 3. Higher iso = higher output 4. They are convex to the origin. |
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Are Indifference curves and isoquants concave or convex to the origin?
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Indiffernce curves and isoquant lines are convex with respect to the origin.
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What is the production function?
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q = f(E,K)
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What does the convexity of an isoquant curve imply?
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That there is a diminishing marginal rate of technical substitution.
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What is the marginal Rate of Technical Substitition?
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The ratio of the marginal products of Labor and Capital.
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What is the slope of an isoquant curve?
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It is the marginal rate of Technical Substituion.
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How do you calculate the marginal rate of technical substitution?
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ΔK / ΔE = -MPe / MPk
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What is the slope of an isocost line?
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The negative ratio of input prices.
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What is the cost minimizing point of production?
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When the slope of the isoquant line equals the slope of the slope of the isocost line.
Marginal Rate Tech Substition = ratio of inputs MPe / MPk = w / r |
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What is the effect of a Cash Grant?
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No participation, no increase in working hours. If you work you lose the cash grant.
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How many slopes does the graph of a traditional welfare graph have?
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2, one for the nominal wage, emenating from the max leisure point, and one whose slope is the net wage, emenating from E.
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What is the effect of a traditional welfare program?
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Decreases hours, decreases participation. Like winning the lottery and getting a pay cut.
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What happens to substitution and income effects in a traditional welfare program?
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Substitution and income ffects work in the same direction, reducing particpation and hours.
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A
traditional
welfare program
with
a
guaranteed
benefit
level
and
a
positive
marginal
tax
rate
has what effects?
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Income and substition effects that both lead to fewer hours worked.
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An increase in wages from below Tims reservation wage to above it has what effects>
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Only a substitution effect.
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What is the effect of the EITC?
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Increases Particpation, ambigious effect on hours worked, due to inflexible hours. Has a hunched shape.
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Graphically, the Average product of labor increases so long as what?
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So long as the average product of labor below the marginal product of labor.
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Which begins to decline first Marginal Product of Labor or the Average Product of Labor?
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Average Product of Labor declines before the marginal product of labor.
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Assuming a normal situtation, in the short run if wages increase what do you do?
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You fire workers, and lower output as you have to hold capital constant.
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Assuming a normal situtation in the long run if wages increase, what do you do?
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You fire workers, and buy capital.
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How do you calculate the marginal rate of techincal substitution?
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Marginal Product of Labor / Marginal Product of Capital
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What is the Scale Effect?
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A change in the level of output that results from a change in the marginal cost of production.
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What is a substitution effect with regards to labor demand?
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A change in the input mix that resultes from a change in the relative input prices.
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What is the combined effect of scale and substituon effects if wages increase.
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The number of workers undoubtedly decreases. The effect on Capital is ambiguous.
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If Capital and Labor are perfect substitutes what is the elasticity of substitution?
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Infinite
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If Capital and Labor are perfect Complements, what is the elasticity of substition?
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Zero
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What kind of effects do Perfect Subtitutes take into account?
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Substitution effect, and a miniscule scale effect.
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What kind of effects do Perfect Complements take into account?
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Only Income effect.
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Why is the combined effect of scale and substituon effects ambiguous with respect to the other input?
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Because scale and substituon effects work in opposite directions.
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What is a logarithm?
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A quantity representing the power to which a base must be raised to produce a given number.
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How do we measure the Labor Force?
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Tge first friday the BLS releases the unemployment stats of previous month. Uses the Current Population Survey.
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How do you calculate the Labor Force?
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Employed + Unemployed
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How do you calculate the Labor Force Participatuon Rate?
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Labor Force / Labor Force + Those Not in Labor Force
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How do you calculate the Unemployent Rate>
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Unemployed / Labor Force
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What is the Current WA unemployment rate>
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9.3%
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How do we calculate Consumption?
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C = w*h + V
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How do we calcualte the Time Constraint (T)
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T = L + h
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How do we define the Utility Function?
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U = f(C,L)
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What are the 4 requirments of an indifference curve?
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1. Negative Slope
2. Cant intercept 3. Convex to the origin 4. Higher curve = more happy |
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what is the slope of the budget constraint line?
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The wage.
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What is the Marginal Utility of Leisure?
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The change in utility resulting from one extra hour of leisure. (Holding C constant)
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What is the Marginal Utility of Leisure?
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The change in utility resulting from one extra hour of leisure. (Holding C constant)
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What is the Marginal Utility of Consumption
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Change in utility resulting from one extra unit of constumption. (Holding L constant)
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What is the Marginal Utility of Consumption
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Change in utility resulting from one extra unit of constumption. (Holding L constant)
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What is the Marginal Rate of Substitution?
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ΔC / ΔL
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What is the Marginal Rate of Substitution?
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ΔC / ΔL
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What does the indiferrence curve of somebody who only cares about Consumption look like?
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Completely Flat, horizontal.
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What does the indiferrence curve of somebody who only cares about Consumption look like?
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Completely Flat, horizontal.
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What does the indifference curve of somebody who doesnt care about consumption look like?
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Completely Vertical
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What does the indifference curve of somebody who doesnt care about consumption look like?
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Completely Vertical
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At what point does a worker decide the trade off between hours of L and of work?
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When the marginal rate of substition = the wage rate.
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If leisure is an inferior good, what does the indifference curve look ike?
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It is more horizontal and flat.
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What determines the relative size of the income effect?
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Relative size of the income ffect is determined by the # of hours you are already working.
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What is the reservation wage?
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The rate where the Marginal Utility of Leisure = Marginal tility of Consumption.
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What happens if the wage offered is greater than the marginal rate of substitution?
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You work.
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At what point does a worker decide the trade off between hours of L and of work?
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When the marginal rate of substition = the wage rate.
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If leisure is an inferior good, what does the indifference curve look ike?
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It is more horizontal and flat.
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What determines the relative size of the income effect?
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Relative size of the income ffect is determined by the # of hours you are already working.
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What is the reservation wage?
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The rate where the Marginal Utility of Leisure = Marginal tility of Consumption.
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What happens if the wage offered is greater than the marginal rate of substitution?
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You work.
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What happens if your marginal rate of substituion is greater than your wage?
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You dont work.
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When is the labor supply inelastic?
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When alpha is <1. Meaning that there is little change in hours despite a wage increase.
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What do most people estimate labor supply elasticity at?
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-.1
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How much did EITC increase employment.
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EITC increased employment by 15.7%
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